Free Fallin’…With a Golden Parachute

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by Benjamin Gibbons

For those who have been involved in the sale of a company, Section 280G of the Internal Revenue Code may sound familiar. Section 280G governs what the IRS considers to be “golden parachute payments” and is generally applicable when a corporation is undergoing a change in control (including both stock sales and asset sales). At a high level, Section 280G imposes on disqualified individuals a 20% excise tax on excess parachute payments paid and a corresponding loss of deduction on such payments by the corporation. Read more

What About Now? – 83(b) Tax Rules Applicable to Early Exercise of Stock Options

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by Bret F. Busacker

Some years ago, I published an article on the importance of understanding the tax rules applicable to equity grants, with a particular focus on being aware of the timing rules for filing an 83(b) election and the importance of making timely elections (available here).

A reader of that 83(b) article approached me recently looking for guidance on when an individual may make an 83(b) election with respect to a stock option.  The question was simple – do you make the 83(b) election within 30 days of the grant of the option or within 30 days of exercise of the option? Read more

Trouble Ahead, Trouble Behind, and You Know Rule 701 Just Crossed My Mind

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By Benjamin Gibbons

This week we’re changing the station on the Benefits Dial to remind private companies who are granting securities to their employees of the importance of complying with Rule 701.  Rule 701 of the Securities Act of 1933 provides a federal securities registration exemption for privately-held companies who are granting securities (including stock options) through written compensatory benefit plans (such as omnibus equity incentive plans) to their employees and contractors (natural persons only).  Absent Rule 701, such securities would generally need to be registered with the Securities and Exchange Commission (SEC).

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Moves Like Jagger … But Is It Deductible? Taxation of Job Search and Moving Expenses

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by Beth Nedrow

Job mobility is a fact. Employees are more mobile than ever – changing jobs multiple times in a career. When an employee transitions between jobs and incurs job search and moving expenses, are those expenses deductible? If the employer pays for them, is it taxable income? Here are a few tips.

Job search expenses like travel for interviews, printing resumes and the like used to be deductible by the employee, at least to some extent. Unfortunately, the 2017 TJCA removed the 2% miscellaneous itemized deduction starting in 2018, so employees can’t deduct these expenses anymore.

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Relief . . . Just a Little Bit – IRS Notice 2020-23: Limited Extensions of Form 5500

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By Kevin Selzer and Lyn Domenick

In the midst of everything going on, we wanted to point out a few “under the radar” implications of IRS Notice 2020-23.  The Notice, issued on April 9th, provides that tax-related deadlines that fall between April 1, 2020 and July 14, 2020 (the “delay period”) are automatically extended to July 15, 2020. 

Delayed 5500s.  Most plan sponsors hoping for Form 5500 relief will have to wait for additional guidance since only a small group of plans have Form 5500 deadlines fall during the delay period.  For example, the regular Form 5500 due date for calendar year plans (July 31st) falls just outside of the delay period.  We note that the DOL has authority under the CARES Act to provide additional Form 5500 relief.

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The Long and Winding Road… of 401(k) plan compensation definitions

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by Ben Gibbons

A plan’s definition of “compensation” tends to be one of the trickier aspects of 401(k) administration.  Having been asked multiple times in the past 12-months whether deferrals to a nonqualified deferred compensation plan need to be deducted before determining eligible compensation for 401(k) deferrals (spoiler: they do), it seems a blog post on the subject is in order.

The vast majority of 401(k) plan documents define compensation by starting with one of the following base definitions: W-2 (Box 1) compensation; Section 3401(a) compensation; or Section 415 compensation (the specifics of these base definitions are beyond the scope of this post).  Each definition has its nuances with respect to whether certain types of compensation should be either included or excluded from the base definition (e.g., fringe benefits or amounts realized from the exercise of stock options).

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She works hard for the money, so you’d better … help her afford to buy company stock

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by Beth Nedrow and Kevin Selzer

Employee Stock Purchase Plans (ESPPs) are a program offered by many companies (particularly those with publicly traded stock) as a way for all of their employees to buy company stock. In their most robust format, employees can buy stock at a discount. You’d think employees would jump at the chance to capitalize on this immediate value opportunity. Not so! Employee participation rates are typically fairly low (often below 50%). Employers who offer ESPPs strive for ways to engage employees to appreciate and participate in this valuable benefit. Those employers may be interested to hear that a startup company is making headlines for its product aimed at boosting ESPP participation.

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